Prior to the economic downturn of 2008 and the global credit crisis, investors allocated capital to investment funds, such as hedge funds, based on performance and the pedigree of the funds' managers. However, since the crash investors have demanded other characteristics such as liquidity and transparency. These demands continue to increase and asset managers are responding to investors' concerns, especially in view of unprecedented redemptions by investors. For example, some managers are making hedge funds more transparent or are agreeing to managed accounts. Others are looking to establish more liquid and transparent funds such as those governed by the United States' Investment Company Act of 1940, as amended (funds governed thereby being “40 Act Funds”), the European Union's Undertakings for Collective Investment in Transferable Securities (such funds governed thereby being “UCITS”) or comparable rules, regulations, and/or directives in other jurisdictions. “UCITS” stands for Undertakings for Collective Investment in Transferable Securities, which are a set of European Union (EU) directives that allow collective investment schemes to operate freely throughout the EU. Under the current regime, UCITS funds can be marketed within all EU countries, provided that the fund and fund managers are registered within the domestic country.
All asset managers may face the problem that they may not have the requisite capital to establish or invest directly in 40 Act Funds, UCITS or similar funds and/or may be unable to invest directly in such UCITS or similar funds. Critical mass of investors at inception is crucial to marketing a fund in any jurisdiction at the moment.